How California Enabled Tesla By Forcing Competitors To Subsidize A Losing Business Model

Tyler Durden's picture

It is no great surprise that Tesla hemorrhages cash.  As we pointed out last month when they reported Q2 earnings, making products that actually generate a return on capital for shareholders isn't a strong suit of the Silicon Valley powerhouse.  In fact, Elon Musk managed to burn through a record $1.2 billion of cash in Q2 alone, or roughly $13 million dollars every single day.

But, as Bloomberg points out today, the one 'product' which Tesla is actually able to sell for a profit is one which was created out of thin air by the state of California and is perhaps the only reason that Elon Musk even has a business to manage.  Of course we're talking about the ever controversial "Zero Emission Vehicle" credits which are less of "product" and more of a subsidy provided by Tesla's competitors, or more accurately the consumers of those competitors who are forced to pay higher prices for their Ford Focus all so Elon Musk can practice digging tunnels.

Tesla Inc. has generated nearly $1 billion in revenue the last five years from an unlikely source: Rival automakers. The payments are part of an unpopular system in California that’s poised to proliferate elsewhere.

 

California requires that automakers sell electric and other non-polluting vehicles in proportion to their market share. If the manufacturers don’t sell enough of them, they have to purchase credits from competitors like Tesla to make up the difference.

 

Tesla, which exclusively sells battery-powered models, sold $302.3 million in regulatory credits last year alone. China and the European Union -- two of the world’s biggest auto markets -- are considering mandates and credit systems similar to California’s. If California is any guide, automakers will resent having to buy from peers, including the electric-car maker led by Elon Musk.

 

“It really makes them mad that Tesla got so much of a boost out of being the only purely electric car manufacturer out there,” Mary Nichols, the chair of the California Air Resources Board, said in an interview Friday at Bloomberg’s headquarters in New York. “In effect, they helped to finance this upstart company which now has all the glamour.”

Going back to early 2013, selling these credits has increasingly padded Tesla's earnings, taking them above consensus forecasts on more than just a few occasions:

The irony, of course, is that a recent study from Morgan Stanley illustrated how "zero-emission" vehicles like Teslas actually generate more CO2 than they save...perhaps California's politicians were under the impression that electricity just magically flows from wall sockets instead of being produced by coal and gas-fired power plants?

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”

 

In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”

 

Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

Oh well, at least as taxpayers we're all doing our part to help pollute the earth and simultaneously enrich one eccentric billionaire in Silicon Valley...which presumably makes sense to some politicians in Sacramento.

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World-Gone-Mad's picture

It's like the Amazon business model. The new way of creating zillionaires without ever being profitable.

NYC_Rocks's picture

I don't think Amazon is subsidzed by taxpayer or competitors at the level of Tesla, so not a fair comparison.  Amazon shareholders can sell their shares if they don't like the burn. You are not being forced to buy from Amazon.  Amazon offers an amazing service. When shareholders subsdize profits, the consumer benefits. 

NoDebt's picture

I wouldn't get all worked up over this.  At least not until they outlaw cars driven by internal combustion engines (I give it 20 years, tops).  Then it will be YOU who is subsidising the whole damned auto industry.  Plus you'll be charging that car with power that cost $12/KWH and a $2 per-vehicle-mile-traveled usage tax kicker.  

Buy a horse.

 

Bes's picture

I hear more bitching on ZH about subsidizing TESLA

than I do about the FUCKING

Military Industrial Complex

----------

good thing trump isn't a

zionist-goldmanite neocon

hahaha.....

trump's nothing but a wall street/MIC bitch

#maga

Freddie's picture

$7 billion in tax subsidies for the Trayvon & whitey hating NFL and their billionaire dual-shitizen owners.   Dumb whites enable the whitey0 hating NFL, NBA and NCAA.

Stuck on Zero's picture

Didn't Volt and Leaf get subsidies, too?

Joe Davola's picture

At least the PZEV's try by planting trees to "offset", even though the trees will likely die because they're planted one on top of another - but hey, at least they try.  Fully elec's just move the location where the emissions occur - both generation and mining the materials for the batteries.

PodissNM's picture

You're forgetting the estimated $1.46 per box postage subsidy Aamazon receives from the USPS  

magnetosphere's picture

uhhh amazon is massively subsidized by taxpayers. amzn pays neither sales tax nor income tax.

ed31337's picture

I know for sure I have to pay sales tax whenever I buy from Amazon. One reason why I don't like buying from Amazon. Besides being monopolistic, I have to pay sales tax and then Amazon purposely slows down shipment of my items to try to sucker me into subscribing to their "Amazon Prime" program? F* that...

eBay for the win!

Miner's picture

I sure as fuck pay income taxes (capital gains) on Amazon.

Hal n back's picture

for a couple of years amzn used USPS for shipping and the USPS was losing 6 bil a year, so yes, taxpayer subsidized AMZN.

Now AMZN is going to independent contrators at 12-19 per hour for delivery--using their own cars. So UPS and USPS were not cheap enuf for aman.

 

 

not dead yet's picture

Nice stretch. So every company, not just Amazon, and every private person that uses the USPS gets a subsidy from the taxpayers. Blame Congress. The USPS would be making money except Congress has forced them to fill up retirement and other funds far ahead of time unlike the rest of the government agencies. USPS asks for a rate increase or wants to close non performing locations your local CONgress person trots out some 5 or 6 indigents and blathering about how it's going to hurt people. People pay big bucks for UPS and FED X and say nary a peep. USPS wants to increase postage a penny or 2, considering the service it's dirt cheap, the whiners come out of the woodwork bitching up a storm. A couple of years ago the USPS had a huge business going on one and 2 day delivery which UPS and FED X hated so they went to Congress and bitched. Congress put the brakes on USPS and you get to pay for it while FED X and UPS make huge profits. USPS is supposed to be a private corporation but really isn't because Congress has the final say.

I've ordered lots of small stuff from Amazon and they shipped it UPS. UPS then took it the USPS and dropped it off. Idiots that hate the USPS claim we should sell the business to UPS and FED X but they won't take it because even they can't make money at it at current rates. A few years ago Chicago sold their parking concessions to Wall Street for a certain number of years and promptly blew the money. Wall Street cranked the hell out of the parking fees and everyone had to suck it up and pay. If the city had raised it even a fraction of what free market Wall Street did the whiners would still be screaming and claiming the private sector would do much better.

knukles's picture

And in the midst of all the criticism, the look on Elon's face says ......

NoDebt's picture

...... I'm rich, bitch!

 

Itinerant's picture

This article if full of ignorant bullshit. How do you think the canals, the railways, the interstate, the telegraph and telecom was built? With help from public efforst and financing.

Of course electricity use is not yet 100% solar and EV's still have a road to go. But you are focussed on now, not on the trends. The trends are that self-driving cars improve by 50% every 16 months. EV's are dropping exponentially in prices, and will easily drive 1 million miles (100× less moving parts). Battery technology price/perfomance was way way better now than the most optimistic forecasts several years ago, let alone those of the EIA. And solar is getting cheapr on a KWh basis by 14%/ year, a doubling time of 5 years. In locales with abundant sun resources it is already the cheapest form of electivity generation. Solar is 3000× cheaper than 30 years ago, on a relative basis. The expansion of solar is also on an exonential trajectory.

Trends. Experts always stick with what they know. Mankind has trouble with the exponential function. Read up about it, e.g,. doubling times of bacteria in a petrie dish.

ed31337's picture

True on the solar power. But it still sucks that Elon gets subsidies for his car business. He makes expensive sports cars that only rich people can afford, meanwhile the little people are stuck subsidizing these rich f*kers toys? That's fked up man.

Miner's picture

Other car companies had the option to make ZEV cars.  They had the tech long before Tesla did.  How many off-lease EV-1's did GM crush while the lessee's stood outside the fence with checks in hand despearte to buy them back?

 

 

not dead yet's picture

What tech. The EV-1's were powered by banks of lead acid batteries and had short range. Those EV-1's had few parts in common with any other GM vehicles so they would have been hugely expensive to build if they went into production. GM took them back and crushed them after their experiment, it was just an experiment so they leased but didn't sell the vehicles, was over to avoid huge liability claims that could happen down the road. Doubt if they met safety standards if they were sold. Unless GM wanted to sell these cars at a huge loss those people with checks in hand couldn't afford them anyway. It took millions to develop and make those few cars. The enviro propagandists like to claim GM killed the electric car but the reality is GM killed THEIR electic car.

If today the claims are the technology isn't there yet for a viable mainstream electric car how could the car companies have it 20 years ago. Today with the huge subsidies for buyers and manufacturers the electric car market is miniscule. If Tesla wasn't a status symbol for the rich they wouldn't be in business either. Very few people want these things which is why governments are in the process of mandating them and outlawing most everything else. Electric may be the future, or maybe not, but the current buyers are saying hell no which is why the big auto companies are in no hurry to field fleets of electrics.

Bonaparte's picture

Solar is subasidized by the government and it is not getting cheaper. It is a dead horse as it existes today. Do you recall when Solyndra was given a $$$$Billion by Obama? Oh, Solyndra filed for bankruptcy and pffft cash gone and fake ass solor gets ignored for the el flopo it is!

jcaz's picture

WHO is ignorant?

WHO owns the canal, railways, interstate, telegraph, and telecom?   I assume you're trying to make a point regarding UTILITIES,  poor as it may be;

HOW is Tesla a utility?  Petrie dish??   Wow-  you got the WHOLE 11th-grade Tesla tutorial, didn't you?

Fucking Tesla idiot-  Musk is fucking you guys in the ass, you're begging him to pound you deeper.....

Business ain't gonna be kind to you, boy- stick to teaching Enviro Science.

not dead yet's picture

Solar has gotten cheaper due to improvements in the technology but the biggest drivers are government subsidies and China flooding the world market with below cost panels subsidized by the Chinese government. The result is most of the companies not from China have been run out of business or are or about to be in bankruptcy. Recently there was a finding that the Chinese were dumping the panels and tariffs of around 50% or more were recommended. If the feds go through with the tariffs you can kiss the solar industry goodbye. Most of the installers are fighting the ruling as they know it's going to kill their industry.

The Muskinater has bragged about putting up all these battery factories but it is just blather and won't happen as the Chinese are building at least 6 mega battery plants. If they do to batteries what they did to solar Musk will never have more than one battery plant. Actually he still doesn't have one as it is Panasonic that's overseeing construction and is supplying the technology, tech that Tesla gets credit for and doesn't deserve, and lots of money. Other well heeled companies have battery plants in the works. Musk got a free plant from New York state for Solar City, which doesn't make panels except for a small experimental operation, where Panasonic is going to build panels from their current line of solar panels which they will share with Solar City as Solar City tries to ramp up production of their solar roofs.

shastatodd's picture

"Mankind has trouble with the exponential function."

yep, like adding (net gain of births minus deaths) 1,000,000 rapacious human animals every 4.5 days... now thats "sustainable" smh


slwsnowman40's picture

Where'd that MI6 agent go now?

JelloBeyonce's picture

Time to jump on the anti-amazon bandwagon.

 

While I have no problems with this article highlighting a portion of the massive problem in the US called "corporate welfare" - why not provide the rest of the story.......namely the billions being given to the other auto makers as well.

 

Fiat/Chrysler, General Motors, and Ford have received government subsidies totaling:

$17,599,200,000 - Fiat/Chrysler

$50,346,920,000 - GM

$27,582,800,000 - Ford

 

 

Fine to bash the subsidies going to the "green" indsutries, but what of the over $3,853,988,000 that has recently been awarded to Exxon alone?  Not to mention the many other billions going to other oil companies.

 

The "corporate welfare" problem has become massive....across the board.

 

Zero Hedge likes to write of propaganda.......so why not pressent both sides of the story in your articles - avoid sinking to the same depths of the other media.  This reads as a wholly pro-fossil fuel anti-electrical energy fluff piece.

What, the oil & gas auto industry slipping ZH a little something, something under the table for favorable industry "articles"? 

 

What, is Elon Musk that much worse than the other corporate leaders, those same wealthy elite that own the largest number of shares in GM, Ford, Fiat/Chrysler (Fidelity, Vanguard, BlackRock, State Street, Deutsch Bank, Credit Suisse, etc.)?

In fact, these are the same wealthy elite that own & control most all the largest public companies in the U.S. (and globally).

Bonaparte's picture

My American made Hyundai is locally made and it got no subsidy. It drives well, is economical and has no real problems unlike my Ford Fuckus, which has had 4 transmission rebuids in two years.

not dead yet's picture

In a way your Hyundai did get a subsidy. Every auto plant built in the US for decades got located where it did by local government tax breaks or taxpayer paid infrastrucure improvments that benefitted the company and the locals. The Musk freaks would call it a subsidy but I would call it an investment because the plant would generate revenue and taxes that would not have existed if it was located elsewhere. Unlike Solyndra and others who knew they were headed out of business and lied to get government loans to feather their personal nests before filing bankruptcy. The real insult with Soyndra was the execs getting the bankruptcy court to leave them in charge and pay them retention bonuses to wind down the business. Instead of trying to sell the inventory on hand they crushed it and threw it away and got paid handsomely to do it.

not dead yet's picture

Every company you mention also makes profits and pays taxes. Are those loans to be paid back or are those so called subsidies tax breaks every company gets. Let's see the actual documentation instead of quotes that originate from BS spewing cherry picking climate change believers or Musk lovers. If everything propagandized clowns claim is subsidized by the government was real it would make the current US debt of 20 trillion look like a flea on an elephant.

 

Saucy-Jack's picture

Government forcing automakers to manufacture and try to sell cars no one wants to buy, then taxing them when no one buys them.

Fucking brilliant.

jcaz's picture

That's Tesla in a nut-shell.... Perfect.

Can't wait until those saps who bot their unsecured bonds realiize that they're never gonna see that money again-  "But, but, but.... It's Elon!"

E.F. Mutton's picture

"This week I have a plan for a light-speed monorail to Venus powered by cow-farts" E.M.

AgAuSkeptic's picture

Oh you Musk hating ZH tin foilers, talking all the time about TSLA and how it'll go bankrupt without subsidies, didya forget about Martin 'WuTang' Shkreli and what he did with Thiola?? The only reason he could rip off patients was a government subsidy called FDA, the thing still costs 100 times more

GunnerySgtHartman's picture

We don't hate Musk (or at least most of us don't), What we do hate is being forced to subsidize his money-losing car business and his loud mouth.  Make him stand on his own two feet and run a profitable business without taxpayer subsidies.  The same people who bitch and moan about fossil-fuel subsidies (with good reason) have no problems with Musk being subsidized.

TheDude1224's picture

Oh please, that isn't even close to the story, and have you seen where Shkreli is these days? Not a good comparison at all, and they are all going to burn.

ed31337's picture

I don't hate on Martin at all. The guy has said many times that if you don't have insurance to cover the cost of his meds, his company will give them to you for free. 70% of production goes towards such freeloaders, so it sounds like the program is for real. He's also lowered the co-pay fees for those that do have the insurance.

What Martin is doing is gouging insurance companies in order to fund research and development of improved medications. These old drugs that Martin bought are quite litterally CRAP when you consider the negative side effects they cause, yet NOBODY was bothering to do research to improve them because the market was considered too small to bother with. With his changes to the market, suddenly it IS possible to fund the research.

I have no love for insurance companies and the health insurance mandate they forced upon us (Obamacare)We voted in the Republicans to repeal Obamacare and so far all they've done is wussed out on us. They are all probably getting too many fat bribes from the health insurance companies to prevent genuine Obamacare repeal from happening. Anything Martin does to help collapse Obamacare from the outside while creating beneficial medications for humanity seems like a big WIN WIN to me. 

Free Martin Shkreli!

not dead yet's picture

Looking at Martins track record and past actions I'd say you should wake because you are drunk on Kool Aid. Those drugs he cranked the crap out of had limited users with the drug fullfilling it's purpose thus no competition for it. If your blather was true about cranking the price to spur research the market is still so small it wouldn't inspire any.

If you had been paying attention you would know the drug companies pay far more money on advertising and marketing than research. Some of the highest paid salesmen on the planet work for drug companies. Instead of researching new drugs the companies are trying to get approval for different uses of their current drugs so as to keep the patents on. For example a drug sold for years as an anti depressant is now being marketed for arthritis. Lots of those blockbuster drugs of the past that drug companies made huge money on were developed with government subsidies. The National Institutes for Health gives out millions of your taxpayer dollars every year for drug research.

ed31337's picture

As bad as drug companies may be, they are far more likely to put new treatments into production than insurance companies ever will. Yes, drug companies might spend money on advertising and marketing along the way to grab some low hanging fruit, but in the long run, they are the only companies making the drugs we ultimately use when we get sick. Insurance companies are never going to produce your next medication (or even your current meds) -- they are simply the middleman between you and the actual producers of health care. They are not doctors and they do not make medications. The only work the insurance companies do is paperwork. 

In your world, everyone should be forced to pay monthly premiums to insurance companies at whatever pricing they decide and then all the profits should go into the insurance companys' pockets instead of drug companies. We should be stuck with 1950's medications that do just as much harm to the patient as they do to the pathogens. We should rely upon GOVERNMENT to do new drug research because obviously, government workers are going to be more productive than people working in private industry. In fact, we should put those private industry guys in jail, because charging money for drugs is MORALLY WRONG, while never-ending taxes and mandatory insurance premiums is MORALLY RIGHT!

That makes no sense to me whatsoever. 

Repeal Obamacare!

roadhazard's picture

"the only pure electric car maker out there" ...heh, ZHers think that's one too many anyway. What I want to know is if it's so bad why is everyone trying to build electric cars.

abgary1's picture

Why? Ignorance of climate science, that's why!

UNEP, IPCC, CRU, NASA are all pepetuating a lie to financially benefit themselves.

Bonaparte's picture

Subsides that is why. Remove them and the elctric car interest will dry up like a fish turd in the desert!  lol!

 

rejected's picture

Answer: Government Subsidies.

And they know government will eventually outlaw (already occurring) the true 'Natural' fuel burning vehicles,,, excepting them and their military of course. Anyone seen a electric jet, buses, 18 wheelers ?

No,,, the wealthy will pay the carbon tax to drive their luxury cars while the rest are riding in bubble cars. No more driving to Disney World. You'll have to take a plane that will produce a thousand times more of that demonic CO2.

Say what you want but abiotic (fossil) carbon base fuels are safe for carbon based life,,, Nuclear will eventually exterminate life by war or accident,,, most likely both.

ed31337's picture

I agree, except I'm not convinced about fossil fuels being abiotic. If fossil fuels are infact coming from biologic life (eg plants), then there might be some logic to switching to electric vehicles.

We already have solar panels that can convert sunshine into electricity twice as efficiently as the best plants photosynthesizing sunshine into biomass. All things being equal, if we get electricity more efficiently from sunshine than we get oil from sunshine, we can support a greater total population of people driving around on electric vehicles than if they were stuck with fossil fueled vehicles.

Of course, if you're right and fossil fuels are coming up to us from the Earth's core where a small fusion reaction is producing energy for us for free, then all this solar panel/electric car development is perhaps unnecessary. Drill baby, drill!

NYC_Rocks's picture

The naive people of this country will never learn that regulation doesn't work.  It just creates advantages for some and higher costs for others.

NoDebt's picture

We already have zero-emission power production- nuclear.  Well, OK, zero emissions until it melts down and then so many emissions we really wish we had never tried it in the first place.  But on paper (which is all that matters, obviously), it's zero emissions.

 

MaxFreedom's picture

Nuclear power is a scam.

Do your research.

Every nuclear power plant would close tomorrow without subsidies.

 

 

Ex-Oligarch's picture

Pro tip: read past the first sentence of a comment before replying. 
"Do your research," indeed. 

shimmy's picture

Global warming libtard cultists are bloody insane.

oddjob's picture

Drove by a Tesla with Cali plates the other day, the car was honking endlessly with its owners standing beside looking inept and stupid. Drove by the same location 2.5 hrs later and they were still standing beside their honking car and looking stupid.

GunnerySgtHartman's picture

Do the damn things not have a main cutoff switch?  Or do the ""I am breathlessly cool because I drive a Tesla" owners too stupid to find the switch?

slwsnowman40's picture

The owners are too stupid, Gunny.  All they care about is they are "saving the planet" completely ignoring the process to make and charge their car.